War, economic turmoil making investment decisions more complex

Sylvia Porter

January 28, 1991|By Sylvia Porter | Sylvia Porter,1990 Los Angeles Times Syndicate Times Mirror Square Los Angeles, Calif. 90053

With recession at home, war in the Middle East and general economic and political turmoil in much of the world, making investment decisions is more complex than ever.

A few weeks ago, on national television, Sen. Daniel Patrick Moynihan of New York was asked what he would do if he had to invest.

"I'd buy a shotgun, move the family to the country and feed the family," he said. "A good shotgun costs $10,000, you know. But they're like Picassos -- they appreciate."

Taking to the woods to forage for game, berries and edible roots is not the answer, and Sen. Moynihan, we assume, was jesting. Nor is buying exotic collectibles like $10,000 shotguns the answer.

Rather, crises are times to live by the orthodox rules of sensible investing. The old tricks of the trade are still the best when you are faced with instability and uncertainty. After talking with experts in the big brokerage houses, government and private consulting firms, I have these suggestions you should consider:

* DO re-evaluate your mutual fund investments. When the market becomes more conservative, as it does in times of unrest, the speculative issues are the ones most likely to suffer. If you're in a fund that goes out on a limb (as many did during the whoop-it-up growth of the 1980s), you may want to switch to something calmer.

* DON'T try to make a killing on specific short-term market moves. They're impossible to predict. For instance, when Pan Am declared bankruptcy a few weeks ago, its price dropped to less than 50 cents per share. Yet within two days the airline had sold some routes, raising some needed capital. Share prices more than doubled. It's easy to speculate that the clever gambler could have doubled his or her money in a day. But, at the same time, a major banking firm's shares plunged dramatically. Shares could have been picked up for a few cents. Days later, the company had been dropped by the exchange and its shares were -- and continue to be -- worth virtually %J nothing. Gambling is gambling. It is not investing.

* DO continue to invest in shares, bonds and funds that are backed by solid companies with proven records through varying economic conditions.

* DON'T speculate on companies that might do a little better should events take a particular turn.

* DO re-evaluate your portfolio in search of companies that are likely to suffer under a variety of likely world events or economic changes.

* DON'T go rushing off to buy gold and other stores of wealth in anticipation of cataclysm. "In times of crisis," says a Chicago bond dEaler, "there is a flight to quality and a flight to lunacy." Putting all your money into precious metals and other portable stores of wealth is a flight to lunacy.

* DO reconsider your asset allocation. This is the one formula you use to help you diversify investments to achieve specific goals. It might involve a certain percentage in cash, a certain percentage in stocks and a certain percentage in high-quality bonds. If you believe the country is in for a hard time, you may want to change the ratios a little and "fly to quality," which is to add some conservative issues to your portfolio. Unless you have a high tolerance for risk, consider getting out of stocks altogether. Long-term government bonds are an attractive shelter in troubled times.

* DON'T sell in the belief that you need an enormous amount of cash so that you'll be ready to pounce when a good deal comes along. Consider whether you should simply ignore fluctuations in the market and ride out the storms.

* DO maintain enough cash to cover any contingencies (which you should be doing anyway) and to take advantage of the occasional opportunity.

Above all, remain calm about your investments. No one ever has made money by panicking, though fortunes have been made by those who induced others to panic.

Be aware that you are investing for the long term. World events can be like a puff of fog as you drive down the road, temporarily obscuring your destination. But if you continue your course, you'll be closer to your destination after the fog has passed.

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